Silver Wheaton Corp. (SLW), which pays miners upfront for a discount on future production, says it’s “never been busier” dealing with mining companies that are finding it more difficult to raise debt and equity financing.
Silver Wheaton buys other companies’ silver output in so- called streaming deals. It aims to do more of those transactions this year if silver prices remain stable, Chief Executive Officer Randy Smallwood said in an interview yesterday in Denver, where he’s attending the Denver Gold Forum.
“There’s a lot coming through the door, but it takes a while to sort out the wheat from the chaff,” Smallwood said.
The CEO said about a third of the talks Vancouver-based Silver Wheaton is involved in right now are with companies interested in doing streaming deals to help fund acquisitions. The emphasis being placed by mining companies such as Barrick Gold Corp. (ABX) and Kinross Gold Corp. (K) on improving investment returns will probably mean increased demand for streaming transactions, Smallwood said.
“The one thing that a silver stream does for a development project is it improves the internal rate of return,” he said. An environment in which companies are more conservative on capital allocations “actually works well for us.”
Silver Wheaton will pay $750 million for the right to buy all the gold and silver produced at HudBay’s 777 mine until Constancia is completed or until the end of 2016, and 50 percent of the gold and all of the silver thereafter. Silver Wheaton will buy all of the silver produced at Constancia once it starts up.
“The challenge for financing mines right now is that the traditional forms of financing, debt and equity, aren’t very strong,” Smallwood said. “Forms of financing like streaming are very much in demand, so we’re busier than we’ve ever been.”
Silver Wheaton rose 0.9 percent to close at C$35.36 in Toronto, having advanced 20 percent this year. Silver for December delivery dropped 0.8 percent to $33.292 an ounce in New York. Silver futures have climbed 19 percent this year.
It’s easiest to negotiate deals when metal prices are stable, Smallwood said. When they rise, Silver Wheaton benefits from increased cash flow, “but expectations start shooting up quite rapidly.”
“If we see continued stability of silver, trading between the high $20s, low $30s, then I’m hopeful that we will be able to make a few more acquisitions,” he said.
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